Back On Growth Path ?
Publish date: Fri, 2 May 2014, 09:27 PM
As mentioned in one of my previous articles, one of my favorite investment theme is contstruction companies that grew by venturing into property development.
After convering Ken, Encorp and Gadang, Mitrajaya seemed to be another company that fits into that category and worth a closer look.
1. Background Information
Based on 398 mil shares outstanding and share price of RM0.76, market cap is RM302 mil.
The group has net assets of RM350 mil, loans of RM81 mil and cash of RM19 mil. Net gearing is 0.18 times only.
The group reported net profit of RM29 mil in FY2013. PE multiple is 10.4 times.
(Mitra share price over past two years)
(Mitra-WC share price over past six months)
2. Landbank
The group has 450 acres of land (154 acres in South Africa).
Out of 450 acres, 63.8 acres are located at prime locations (yellow highlighted) with net book value of RM134 mil.
The landbank should be sufficient to last the group at least another four, five years.
| Area | NBV | |||
| Location | Description | (acres) | (RM mil) | Year |
| Kampung Seri Aman Dalam, Puchong | residential land | 2.0 | 1.1 | 2007 |
| Setapak, KL | commercial land | 7.2 | 17.5 | 1999 |
| Pengerang, Johor | development land | 10.8 | 4.9 | 1996 |
| Kampung Seri Aman Dalam, Puchong | ongoing development | 19.5 | 45.4 | 2004 |
| Kampung Seri Aman Dalam, Puchong | vacant land | 4.3 | 3.5 | 2004 |
| Serendah, Selangor | 309 parcels of land | 9.3 | 4.9 | 2006 |
| Melaka Tengah | 92 parcels of land | 17.5 | 28.4 | 2006 |
| Serendah, Selangor | industrial land | 7.1 | 4.9 | 1997 |
| Mukim Petaling | industrial land | 9.3 | 42.0 | 2009 |
| South Africa | on going development | 154.4 | 26.8 | 2006 |
| Puchong Perdana, Selangor | development land | 10.7 | 19.5 | 1999 |
| Kuala Langat, Selangor | development land | 198.0 | 29.0 | 2007 |
| 450.1 | 227.9 |
3. Historical Profitability
Mitrajaya did well in 2010 and 2011, which saw its market cap balloon substantially. However, in 2012 and 2013, the group's net profit has declined due to the following reasons :-
(a) drop in property development revenue, from RM136 mil in FY2011 to RM80 mil in FY2012. Even though rebounced in FY2013 to RM105 mil, it is still lower than 2010 and 2011.
(b) substantial drop in profit margin for construction division from 20% to 8%.
| FY2010 | FY2011 | FY2012 | FY2013 | ||
| Revenue (RM mil) | |||||
| Construction | 147.5 | 142.3 | 160.0 | 215.8 | |
| Property development | 155.3 | 136.3 | 80.2 | 105.0 | |
| Others | 24.8 | 55.5 | 45.0 | 42.3 | |
| 327.6 | 334.1 | 285.2 | 363.1 | ||
| Operating profit (RM mil) | |||||
| Construction | 32.2 | 27.2 | 12.6 | 14.5 | |
| Property development | 46.2 | 34.4 | 17.8 | 20.9 | |
| Others | 6.47 | (1.5) | (1.4) | 6.0 | |
| 84.9 | 60.1 | 29.0 | 41.4 | ||
| Profit margin (%) | |||||
| Construction | 21.8 | 19.1 | 7.9 | 6.7 | |
| Property development | 29.7 | 25.2 | 22.2 | 19.9 | |
| Others | 26.1 | (2.7) | (3.2) | 14.1 | |
| Net profit | 49.9 | 40.8 | 17.9 | 29.3 | |
4. Development Projects
In October 2012, the group launched its 11 blocks of 280 units 6 storey duplex apartments with GDV of RM330 mil at Puchong Prima. This project is likely to be the major profit contributor to property division over the next two years.
According to FY2012 annual report, the group has also submitted development order application for the following two projects with GDV in excess of RM1 billion :-
(a) 3 bocks of high rise condos in Wangsa Maju located opposite Wangsa Walk Shopping Mall with nearby LRT facilities; and
(b) mixed development for a new township on 180 acres of land in Banting, Selangor.
(Duplex project (280 units) in Puchong Prima with GDV of RM330 mil)
(The Duplex project is low density)
5. Recently Secured Construction Contracts
Over the past 6 months, the group secured RM706 mil contracts :-
(a) RM278 mil contract from UEM Sunrise for building works at Cyberjaya. Target to complete by August 2016 (29 months).
(b) RM428 mil contract from Putrajaya Holdings Bhd for construction of office buildings for Suruhanjaya Pencegah Rasuah Malaysia. Target completion by December 2016
This works out to be average of RM282 mil per annum (for comparison purpose, in FY2013, construction division reported revenue of RM216 mil).
6. Concluding Remarks
(a) Mitrajaya has strong balance sheets. However, it has not done well in the past two years due to factors as mentioned in (3) above.
(b) however, in latest quarter, its net profit jumped to RM13.5 mil, which is considered a breakout from past two years' depressing pattern (average RM7 mil per quarter).
It is difficult to say whether next few quarters the group can continue to deliver strong performance. We can only tell when the results is released by end of May to have a better feel of its momentum for 2014.
(c) Having said so, it seemed that its two major divisions (construction and property development) might be able to do well over next two years.
The property division should start benefiting from the Duplex project in Puchong Prima rolled out in October 2012 with GDV of RM330 mil (3 times FY2013 property revenue).
Its construction division has recently secured RM706 mil which should keep the group busy over next two years.
(d) Mitrajaya share price has been quite strong recently, rising from around 55 sen to 76 sen within short few months. Maybe there is some interesting corporate development in the works.
Let's wait and see what transpires.
Have a nice evening.
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